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California appellate court clarifies that general design concepts are entitled to trade secret protection under California’s implementation of UTSA

In a recent opinion comparing and contrasting trade secret law and patent law, Altavion v. Konica Minolta Systems Laboratory, Inc., 226 Cal. App. 4th 26 (2014), a California appellate court confirmed that ideas — in this case, an inventor’s general and specific design concepts relating to digital stamping technology — may qualify as protectable trade secrets under California law in cases where the inventor has kept such ideas secret rather than filing for a patent.

The plaintiff, Altavion, had developed a digital stamping technology (DST) for creating self-authenticating documents using bar codes encoded with the contents of the original document. Altavion entered into business negotiations in 2003 with Konica Minolta Systems Laboratory (KMSL), a research subsidiary of a company that manufactures multifunction printers. After signing a non-disclosure agreement (NDA) with KMSL, Altavion disclosed its DST ideas to KMSL in furtherance of a potential business partnership. Although Altavion never disclosed algorithms or source code for executing the technology, it did provide KMSL with a product demonstration and disclosed high-level DST design concepts, which it had kept secret from other companies.

Several months later, after the business negotiations had broken down, Altavion learned that KMSL had filed patent applications encompassing Altavion’s DST technology. Altavion sued KMSL for trade secret misappropriation and breach of the NDA. The trial court concluded that KMSL was liable for trade secret misappropriation and awarded Altavion over $1 million in compensatory damages and more than $3 million in attorneys’ fees.

On appeal, KMSL argued that “generalized ideas and inventions are protectable by patents and thus cannot be trade secrets.” The appellate court squarely rejected this argument, explaining that there are various reasons why an inventor may elect to keep his/her invention secret rather than filing for a patent, such as the risk that the patent could be invalidated by the courts, resulting in “disclosure of an invention to competitors with no benefit.” The law of trade secret misappropriation affords protections to such inventors who disclose their secret unpatented ideas — and not necessarily the formulas, algorithms, or source code executing those ideas — in a confidential setting.

The Altavion decision resolves any uncertainty under California precedent as to whether ideas, such as high-level design concepts, can qualify as protectable trade secrets. If such ideas are sufficiently specific and meet the other requirements of trade secret protection — i.e., they derive independent economic value from not being generally known, and the inventor made reasonable efforts to maintain their secrecy — the commercial exploitation of these ideas by a competitor may give rise to a lawsuit under California law.